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User Perception of Retail Banking Services: A Comparative Study of Public and Private Sector Banks

R A Ravi*

Due to increasing competition in retail banking, understanding the customer perception about service quality is becoming indispensable. The private sector banks are posing a very stiff competition to the public sector banks through their initiatives for meeting customer expectations and gaining a cutting edge. This is reflected by the increasing market share and better profitability of private banks in comparison to that of public sector banks. At the same time, public sector banks have also responded to the challenges posed by the private sector banks through conscious efforts to enhance their service quality. This study compares public sector banks and private sector banks in terms of user perception of their retail banking services.

Introduction
Banking in India has witnessed remarkable changes and development since the onset of the processes of liberalization, globalization and privatization. The challenges ahead for banks have greatly increased with increasing competition and the growing demand for a greater variety and superior quality of banking services. The growth of the retail banking industry is one area which has generated a lot of interest primarily because of the entry of many private sector banks and foreign banks, resulting in the availability of a wide variety of innovative products and services for the customers. The customer orientation of the banking sector has significantly increased in recent times. The introduction of a variety of new products and services with emphasis on quality of service clearly indicates how banks address the issue of customer needs and requirements through a customer-centric approach.

controlling and thereby improving the customer perception in the context of service quality of retail banking services. focusing on niche customers. the private sector Indian banks recruit the finest manpower.
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. which meet the mass banking requirements. the recent developments like the mushrooming of large multinational banking companies and increased banking innovations have caused a great deal of indecisiveness in differentiating the banks from each other in terms of their quality of service. Like the foreign banks. The strategies adopted by the private sector banks are more in tune with those of the foreign banks.
Explanation of the Key Terms
Retail Banking
It is popularly perceived to be mass-market banking where individual customers typically use banks for services such as savings and current accounts. depository services. requirements and convenience. the emerging trends indicate that they pose a great threat to the public sector banks because of their increasing market share. the public sector banks’ share of total net profit is 70% and the share of deposits is 77%. mortgages. from the viewpoint of expectations. debit cards. In comparison. where emphasis is given to establishing superior benchmarks of efficiency. determining and measuring. providing impressive customer service and bringing about operating efficiencies by using high-end technology.
Significance of Evaluation of User Perception
With increasing competition among the banks. This would facilitate the process of categorizing.2%). credit cards. Private sector banks are oriented toward niche banking. these figures indicate lower profitability in terms of comparison of proportion of profits to deposits of private sector Indian banks.customer deposits (8. unlike the public sector banks. and majority of its shares are held by private parties.
Private Sector Bank
A private sector Indian bank is one having its registered office in India. This emerging scenario makes it necessary for the banks to identify customer perception of service quality. which strongly influences the customers’ behavioral intentions. fixed deposits and investment advisory services. It also refers to services offered by banks on a small scale to customers.
Public Sector Bank
A bank whose ownership and control are vested with the government by virtue of it holding the majority of shares. This study is an attempt to evaluate and compare the customer perception about retail banking services offered by public sector banks with that of private sector banks. the need to gain competitive advantage has become exceedingly imperative for their survival. Even though the private sector Indian banks do not have an extensive range of branch networks. From the customers’ perspective. employ state-of-the-art technologies and are oriented towards building a strong brand image.
User Perception
User perception is the felt experience about various attributes of a product or service by a customer. loans.

competence. Each representative bank has been evaluated on 18 parameters. The parameters have been quantified by calculating the mean score. The dimension ‘convenience’ takes into consideration the aspect of convenience of the banks’ branch locations and the access to a variety of services. The sample size of 120 is divided equally as 60 from three public sector banks and 60 from three private sector banks. type of technology adopted and the banks’ communication devices. further divided as ten customers representing each branch. The questionnaire has been personally administered on a sample size of 120. VII. The methodology adopted has been based upon the four dimensions of user perception of retail banking services—customer focus and orientation. The third dimension ‘tangibles’ is associated with physical facilities and visual appeal of the banks’ infrastructure. Twenty customers represent each bank. that include the parameters of user perception. 2008
.
Findings
The findings relating to the four dimensions. The first dimension. and To identify the areas of overall strengths and weaknesses of public and private sector Indian banks in terms of services offered to customers
Methodology
This is an analytical study based mainly on the primary data collected through scientifically developed questionnaire. two branches of each of the three banks were chosen on sector-wise basis—public and private. while HDFC Bank. Karnataka Bank and Centurion Bank represent the private sector banks. To compare the user perception in terms of contentment in the context of different types of services offered by public and private sector Indian banks.Objectives of the Study
• • •
To evaluate the user perception in terms of retail banking services offered by public and private sector Indian banks. The degree of perception of customers on the parameters is quantified by using a 5-point Likert scale. are below:
Customer Focus and Orientation
• Customer guidance and support • Politeness and hospitality • Handling customer grievances
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The Icfai Journal of Bank Management. used in this study. Canara Bank. competence. ‘competence’ is identified with the dependability of the services offered. No. The second dimension. 2. ‘customer focus and orientation’ refers to the approach and capability of the employees of the banks in terms of their dealings with the customers. As a representation. and convenience. Indian Bank and Corporation Bank represent the public sector banks. The 18 parameters identified for this study have been identified in terms of the above-mentioned dimensions—customer focus and orientation. tangibles and convenience. tangibles. chosen on a convenient basis from among three public sector and three private sector banks in the city of Bangalore. Vol.

The columns of coefficient of variation percentages have been tested for significance by conducting a normal test (Z test) as per the following formula:
Z
CV1  CV2 ( CV12 / 2n1 )  ( CV22 / 2n 2 )
~ N ( 0. Three tables have been drawn up to facilitate the comparison (Tables 1.• Method of imposing service charges. coefficient of variation and correlation (Table 1).96. 2 and 3). e-banking. standard deviation.1)
Where CV is coefficient of variation. • Banks network and physical facilities to operate account from any part of the country/globe • Ambiance and décor (interiors) • Mobile banking.
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.96) as indicated by Table 2. Internet banking and use of other latest technologies
Convenience
• Convenience in operating account • Timings of the bank • Variety of income earning options • Communication and providing prompt information
Analysis
The analysis of the above-mentioned parameters has been carried out on individual basis. fines and penalties • Return on deposits
Competence
• Speed. The value of Z for each parameter has been calculated to find whether it is in the range (1. The Z test has been employed to test the significance of coefficient of variation percentages. 1 and 2 are public and private sector banks and n1 and n2 are the respective sample sizes. etc. with regard to the public sector banks and private sector banks. At 5% level of significance in 2-tailed test. promptness and accuracy in transactions • Safety of investments • Confidentiality of account and transactions • Variety of services offered • Goodwill and reputation of the bank
Tangibles
• Infrastructure facilities like parking. the table value is 1. by computation of their respective mean scores. ATM. cafeteria.

Customer Guidance/Support: With regard to ‘customer guidance and support’.16% (for public sector banks) and 20.38. VII.823 (for private banks) is slightly divergent.98% (for public sector banks) and 23. have a higher mean score than that of public sector banks. which is significant. does not seem to be divergent.41. The mean score of private sector banks is 4. 5.79 (for public sector banks) and 0.78 (for private sector banks) does not seem to be divergent.853 (for public sector banks) and 0. which is 30. which is 22. the private sector banks are perceived to be better.899 (for private sector banks). No. This is further proved by the difference in the coefficient of variation. a minor difference of just 2 basis points.7% (for private banks). This is further confirmed by the coefficient of variation. 2008
.00.Parameter-wise Analysis
1. The standard deviation in the rating pattern regarding customer guidance and support being 0. indicating that ‘politeness and hospitality’ of private sector banks seems better than that of public sector banks. with a difference of 32 basis points.660. which is highly significant. indicating significant difference between the two types of banks. The private sector banks seem to outperform the public sector banks by 30 basis points.68. in the context of politeness and hospitality. The standard deviation being 0.65.789. Handling of Customer Grievances: The private sector banks are perceived to be much better than public sector banks when it comes to ‘handling of customer grievances’. with a difference of 55 basis points. There seems to be a very high degree of correlation in terms of customer perception relating to ‘handling of customer grievances’ of both the types of banks.69 and 0. The standard deviation in the rating pattern regarding ‘handling of customer grievances’ is 1. which is 21.315 (exceeding the standard Z score table value of 1. At 5% level of significance in 2-tailed test the calculated value (using formula) of Z is 2. does not seem to be divergent. whereas that of public sector banks is 3.043 (for public sector banks) and 0. This has been emphasized by the coefficient of
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The Icfai Journal of Bank Management. private sector banks are perceived to be better. The standard deviation in the rating pattern for this parameter being 0. 2.90.43 whereas for private sector banks it is 3. 3.83% (for public sector banks) and 22. which is significant. The standard deviation regarding ‘politeness and hospitality’ of 0.966 and that of public sector banks are 3. 4.61. Return on Deposits: With regard to ‘return of deposits’.05% (for private sector banks). which indicates a higher degree of divergence for public sector banks than that of private sector banks. There is a high degree of correlation in the customer perception pattern. Method of Imposing Service Charges and Fines: With reference to the ‘method of imposing service charges. 2. The mean scores for the public sector banks is 3. Vol. which has been highlighted by their respective mean scores. This is evident from the fact that the mean scores of private sector banks are 3. the public sector banks seem to score very marginally over the private sector banks. fines and penalties’.73% (for private sector banks). This is further stressed by the coefficient of variation which 23. There is almost a perfect correlation in the customer perception patterns.93 whereas that of public sector banks is 3. Politeness and Hospitality: The private sector banks. The private sector banks outperform by 29 basis points. This is evident from the fact that the mean score of private sector banks is 3.6% respectively. whereas that of public sector banks is 3. This has been further affirmed by the coefficient of variation. The mean score of private sector banks is 3. There is a moderately high positive correlation in the customer perception pattern.96).73% and 19.787 and 0.

75 (for public sector banks) and 0. There is a very high degree of correlation in the customer perception pattern. The private sector banks have a mean score of 4. This indicates that the ‘speed. the calculated value (using formula) of Z is 3. Speed.083 (for public sector banks). promptness and accuracy in transactions’.83 (for private sector banks) points out the slight divergence. The mean scores of 4. The standard deviation in the rating pattern is 0.96) indicating significant difference between the two types of banks.133 (for private sector banks) and 3. 10.94% (for private sector banks).41% (for public sector banks) and 12. affirmed by the coefficient of variation. At 5% level of significance in the 2-tailed test. The standard deviation in the rating pattern regarding ‘variety of services’ is 0.
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. Goodwill and Reputation of the Bank: The private sector banks score over the public sector banks with regard to this parameter.535 (for private sector banks) showing a high degree of divergence.07%. The private sector banks seem to have an edge over the public sector banks.747 (for private sector banks).33% (for private sector banks).79% and 18.73. with 23 basis point difference in their favor. The public sector banks have a mean score of 4.08% (for private sector banks) emphasizing slight divergence. Confidentiality of Account and Transactions: In terms of providing ‘confidentiality of account and transactions’ there does not seem to be much difference between the public sector and private sector banks. There is a very high degree of correlation in the customer perception patterns. This has been further proved by the difference in terms of the coefficient of variation of 20.796 (for public sector banks) and 0.395 (exceeding standard Z score – table value 1.18 and the private sector banks have 3. The standard deviation in the rating pattern regarding this parameter at 0. 8. The standard deviation at 0. which shows that there is a slight divergence.08 (for public sector banks) and 4.90 (for public sector banks).74 and 0. There is a very high degree of correlation in the customer perception patterns. promptness and accuracy in transactions’ is perceived to be better by customers of private sector banks in comparison to public sector banks.77 does not seem divergent in terms of scoring pattern. the difference being 40 basis points. while the public sector banks’ mean score is 3. Promptness and Accuracy in Transactions: There is a major difference in terms of the mean scores of public sector banks and private sector banks with regard to ‘speed. There is a moderately high positive correlation in the customer perception pattern.13. which is confirmed by the coefficient of variation of 17.25% (for public sector banks) and 20.216 (for private sector banks) and 4. There seems to be high degree of correlation in the customer perception patterns. 9. which is 15. 7. Safety of Investments: The public sector banks appear to provide better ‘safety of investments’ in the context of the mean scores. as is evident from the mean scores of 4. There is a very slight difference of just 5 basis points between the mean scores in favor of private sector banks. with a difference of 20 points in favor of public sector banks. 6. The coefficient of variation is 20.variation which is 19% and 16. Variety of Services Offered: The private sector banks are perceived to be better than public sector banks in terms of ‘variety of services’ offered.98 as their mean score.85% (for public sector banks) and 19.645 (for public sector banks) and 0.13 (for private sector banks). This is indicated by the mean scores of 4.82%. reveal that the ‘goodwill and reputation’ of private sector banks as perceived by their customers is slightly better when compared to the public sector banks.

15. The private sector banks outdo the public sector banks by 25 basis points.33% (for private sector banks). This has been
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The Icfai Journal of Bank Management.75 whereas that of the public sector banks is 3. There is moderately high positive correlation in the customer perception pattern. This is confirmed by the coefficient of variation. Internet Banking and Other Latest Technologies: The private sector banks are perceived to be better than the public sector banks in the use of these latest technologies. There is a difference of 54 basis points.96% (for public sector banks) and 24.The standard deviation of 0. further affirmed by the coefficient of variation at 23. regarding this parameter. The standard deviation at 0.640 (for private sector banks) shows slight divergence. the private sector banks are perceived to be slightly better.31 (for public sector banks) and 3. Banks’ Network and Facilities to Operate Account from Any Part of the Country/ Globe: The private sector banks’ mean score regarding this parameter is 3. Convenience in Operating Account: Regarding this parameter. The standard deviation at 0. The standard deviation is 0. Infrastructure Facilities like Parking. the private sector banks seem to be regarded highly by their customers with respect to this parameter. 12. in comparison to public sector banks. 14. 11. The standard deviation in the rating pattern is 0. e-Banking.85 (for private sector banks).88 (for private sector banks) with a difference of 52 basis points.36 (for public sector banks) and 3.932 (for private sector banks) indicating a high degree of divergence.933 (for public sector banks) and 4.787 (for public sector banks) and 0.583 and that of public sector banks is 3. Even though the public sector banks have a wide network of branches. 2. private sector banks are perceived to be much better than the public sector banks. No. This is evident from the fact that the mean score of private sector banks is 3. There is a difference of 39 basis points.932 (for public sector banks) and 0.860 (for public sector banks) indicates slight divergence. which is reflected by the mean scores of 3. indicating slight divergence.78% (for private sector banks). 13. This has been further emphasized by the coefficient of variation at 19. This has been highlighted by the respective mean scores of 3.888 (for private sector banks).15% (for public sector banks) and 22.780 (for public sector banks) and 0. Mobile Banking. which is 19.27% (for public sector banks) and 15.21% (for public sector banks) and 20.18% (for private sector banks). 2008
. There is a very high degree of correlation in the customer perception patterns. Ambiance and Décor (interiors): In terms of this parameter.662 (for public sector banks) and 0. Vol.880 (for public sector banks) and 0.624 (for public sector banks) and 0.333. VII. Cafeteria.: With regard to ‘infrastructure facilities’. the private sector banks have an edge over the public sector banks. This has been emphasized by the coefficient of variation at 19. There is a very high degree of correlation in the customer perception patterns. ATM. which is significant.36. The mean scores are 3. There is a moderately high positive correlation in the customer perception patterns. There is a very high degree of correlation in the customer perception patterns.70% (for public sector banks) and 24. which is significant.85% (for private sector banks).18% (for private sector banks).666 (for private sector banks) indicating a high degree of divergence in the case of public sector banks. which is affirmed by the coefficient of variation at 27. etc. The standard deviation with reference to rating pattern is 0.783 (for private sector banks) does not seem much divergent. which is significant.216 (for private sector banks) with a difference of 27 basis points which is significant.

further proved by the coefficient of variation at 22.75 (for private sector banks). There is a very high degree of correlation in the customer perception patterns.700 (for public sector banks) and 4. There is a very high degree of correlation in the customer perception patterns. speed and accuracy. communication and providing prompt information. Significant difference has been observed in the standard deviation and coefficient of variation in the rating pattern between the two types of banks. return on deposits.79% for private sector banks.
Perception
The above parameter-wise analysis indicates that though the customers’ perception is positive for both public and private sector banks. comparatively private sector banks score over the public sector banks in all parameters.829 and 0. Timings of the Bank: In the context of this parameter there does not seem to be any significant difference between the public sector and private sector banks. ambiance and décor. 17. Variety of Income Earning Options: The private sector banks are slightly better perceived regarding this parameter as highlighted by the mean scores of 3.90 (for private sector banks) with just 10 basis point difference.819 (for public sector banks) and 0. particularly for the parameters—handling of customer grievances.55% (for public sector banks) and 19. 16. Some of the areas where significant difference in the mean scores between the two types of banks were observed specifically are the following parameters: handling of customer grievances.083 (for private sector banks). The standard deviation is 0. There is a difference of 17 basis points indicating the slight difference. At 5% level of significance in the 2-tailed test the calculated value (using formula) of Z is 2.774 (for private sector banks) indicates slight divergence.829 which is almost the same. which has been confirmed by the coefficient of variation at 21. which is proved by the coefficient of variation at 23. and customer guidance/support.96) indicating significant difference between the two types of banks. The mean scores are 3.15% (for public sector banks) and 26. Communication and Providing Prompt Information: In terms of this parameter the private sector banks are perceived to be better than the public sector banks. This indicates high
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. mobile banking and use of latest technologies.829 (for public sector banks) and 0. 18. There is a high degree of correlation in terms of the scoring patterns.630 (exceeding the standard Z score table value of 1.37% for public sector banks and 15. The private sector banks outperform the public sector banks by a difference of 38 basis points. The mean scores are 3.985 (for private sector banks) indicating slight divergence. which is significant. which exists in comparison with private sector banks.58 (for public sector banks) and 3. The standard deviation in the rating pattern regarding this parameter is 0. except for the safety of investments and method of imposing service charges by banks.80 (for public sector banks) and 3. There is almost perfect positive correlation in the customer perception patterns. variety of services offered and convenience in operating account. infrastructure facilities. The perception levels with regard to the above-mentioned parameters indicate the areas where the public sector banks need to consciously improve and take corrective steps in order to bridge the gap in customer perception levels. banks’ network.26% (for private sector banks). The standard deviation at 0. indicating no divergence.84 (for private sector banks).

The calculation of correlation was to understand whether the perception was the same across public and private sector banks. (though it appears comparatively better than public sector banks). public sector banks have to make a conscious effort to meet the customer needs and requirements in the wake of competition and ever-increasing expectations of customers. e-banking. cafeteria. out of the 18 parameters. The private sector banks need to attend to these two aspects of customer services.
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The Icfai Journal of Bank Management. both public sector and private sector banks appear to be providing services to the satisfaction of customers. VII. This indicates that though the user perception for these two banking sectors is similar for the majority of parameters. there was. There was a very marginal difference in the mean scores. are: (a) safety of investment. identified in the case of public sector banks. cafeteria. etc. ATM. (b) speed accuracy and promptness. (b) network and physical facilities to operate account from any part of the country/globe. (c) confidentiality of account and transactions. though the mean score was much higher than that of public sector banks. Vol. The areas of strengths and weaknesses of both these banks have been identified based on the mean scores. internet banking and use of latest technologies. and (c) goodwill. H
* PE Estimate is appended as – Annexure 1. the public sector banks need to address these areas in the context of customer requirements. very high degree of correlation for 11 parameters and almost perfect positive correlation for two parameters. rather than simply marketing. The study indicates that though there is a positive perception for both the sectors. No... and (f) communication and providing prompt information. there exists a certain gap. (d) handling of customer grievances. applies to the parameters. etc.
Conclusion
As per this study. Because of the wide variation of responses. Accordingly. This creates positive user perception and perhaps is the only way to meet the challenge posed by the private sector banks. The areas which are to be addressed and improved would be with reference to: (a) imposing of services charges. It is high time that they concentrated on customization of products. and (b) improving the infrastructure facilities like parking. 2. (c) infrastructure facilities like parking. structure and conduct of competition pressurize the public sector banks to change their attitude towards the market and market-related issues. There was also a high degree of divergence in terms of the standard deviation and coefficient of variation noticed with regard to the parameter—banks’ network and facilities to operate account from any part of the country/globe—for private sector banks. The change in nature. The public sector banks were perceived to be better than private sector banks with respect to the following parameters: method of imposing service charges and safety of investments. a moderately positive correlation for five parameters. (d) variety of services offered. This can also be another area which private sector needs to introspect and deal with to meet customer requirements. fines and penalties. The testing of correlation (refer Annexure) using Probable Error* (PE) indicates that the correlation coefficient is accepted and the results can confidently be interpreted. 2008
. i. (e) goodwill.e. The areas of concern where improvements would be required. ATM.divergence in customer responses for these three parameters of public sector banks. (b) confidentiality of transactions. (a) mobile banking. The areas of strength. With regard to the private sector banks the areas of strengths are: (a) politeness and hospitality. and (e) ambience and décor..

Confidentiality of account and transactions ÷ Very Good ÷ Very Good ÷ Average ÷ Average ÷ Bad ÷ Bad ÷ Very Bad ÷ Very Bad ÷ Very Good ÷ Very Good ÷ Very Good ÷ Average ÷ Average ÷ Average ÷ Bad ÷ Bad ÷ Bad ÷ Very Bad ÷ Very Bad ÷ Very Bad
3. etc. 1. Safety of investments ÷ Excellent ÷ Excellent 9.Annexure 2
Questionnaire
(This survey has been carried out purely for academic purpose.. 12. clarification of customers doubts) ÷ Excellent ÷ Very Good ÷ Average ÷ Bad ÷ Very Bad 2. Internet banking and other latest technologies (Contd. Method of imposing service charges. e-banking. Customer guidance/support (advisory services. The returns on deposits ÷ Excellent ÷ Excellent 7.. ATM. Goodwill and reputation of the bank 11. Handling of customer grievances (complaints) 4. fines and penalties
6.) ÷ Very Good ÷ Very Good ÷ Average ÷ Average ÷ Bad ÷ Bad ÷ Very Bad ÷ Very Bad 8. Variety of services offered ÷ Excellent ÷ Excellent ÷ Excellent ÷ Excellent ÷ Excellent ÷ Very Good ÷ Very Good ÷ Very Good ÷ Very Good ÷ Very Good ÷ Average ÷ Average ÷ Average ÷ Average ÷ Average ÷ Bad ÷ Bad ÷ Bad ÷ Bad ÷ Bad ÷ Very Bad ÷ Very Bad ÷ Very Bad ÷ Very Bad ÷ Very Bad 10. Speed. Mobile banking. The Infrastructure facilities like parking. promptness and accuracy in transactions
User Perception of Retail Banking Services: A Comparative Study of Public and Private Sector Banks
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. Ambiance and décor (interiors) 14. we request you to be as frank as possible.. The politeness and hospitality ÷ Excellent ÷ Excellent ÷ Excellent 5. cafeteria.) Kindly rate the following with regard to the services provided by your bank. Banks network and facilities to operate account from any part of the country/globe 13. The information provided by you will be kept confidential.